What are the four functions of money?
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What are the four functions of money?
The four functions of money are:
A medium of exchange
A measure of value
A store of value
A method of deferred payment
What does the phrase medium of exchange mean?
A medium of exchange is something that facilitates the exchange of goods without requiring a double co-incidence of wants, as in bartering.
How does money function as a measure of value?
Money provides a means of ascribing value to different goods and services, allowing buyers and sellers to make decisions.
True or False?
Money can retain value indefinitely.
False.
Money may not retain value indefinitely due to inflation.
What is meant by a method of deferred payment?
A method of deferred payment means that the existence of money makes it possible to arrange credit terms (loans) or to acquire goods in the present and pay later.
What does divisibility of money refer to?
Divisibility of money refers to the ability of currency to be divided into smaller denominations for exchange.
What does the characteristic of acceptability mean?
Acceptability refers to the fact that the currency must be valued and widely accepted by society as a valid way to pay for goods and services.
What is scarcity as a characteristic of money?
Scarcity maintains that the supply of the currency should be limited so that it remains desirable and retains its value in the market.
What does uniformity of money mean?
Uniformity of money refers to the fact that each denomination must be exactly the same, e.g. every $50 note must be exactly the same.
True or False?
Portability refers to currency being lightweight.
False.
Portability refers to the ease with which currency can be carried or concealed.
What is the aim of central banks in implementing monetary policy?
Central banks use monetary policy tools to meet government economic objectives and create economic growth.
Why is the central bank the banker to the government?
The central bank is the banker to the government because it manages the government's tax receipts and payments, including paying the salaries of all public sector workers.
What is meant by the term lender of last resort?
Lender of last resort means that the central bank lends to commercial banks when they have short-term liquidity issues, with the aim of helping them avoid bankruptcy.
How do central banks regulate the banking industry?
Central banks regulate the industry by monitoring and enforcing rules to protect consumers, as there is often a large amount of asymmetric information in financial markets.
How do commercial banks facilitate saving?
Commercial banks facilitate saving by storing money for future use in different types of savings accounts.
True or False?
Commercial banks only deal in cash transactions.
False.
Commercial banks provide digital payment methods like apps, cards and transfers.
What are equities?
Equities are shares in public companies that are listed on stock exchanges.
What market do commercial banks provide for equities?
A market is a place that facilitates trade, and commercial banks provide platforms for buying and selling company shares.
True or False?
Commercial banks only operate in domestic markets.
False.
Commercial banks deal in international currencies and global financial markets.
What are some examples of financial instruments?
Examples of financial instruments include:
Loans
Bonds
Equities
International currencies